An Alternative Approach for Israel's Energy Exports

The decisions Israel makes on how to export gas to Europe from the Leviathan field will have a positive geopolitical impact on Israel if conducted in a manner that takes into account the complex geopolitics of the region.

George Papadopoulos, 18/03/14 07:16

George Papadopoulos

INN: GP

George Papadopoulos

The writer is a senior consultant at the Hudson Institute think tank in Washington, DC and the initiator of the first conference on US- Israel-Greece-Cyprus geopolitical developments.

Since April 2013, Israel has transformed itself from a country almost completely dependent on foreign energy, to one that is energy self sufficient. The offshore Tamar gas field is already operating at full production capacity and is supplying Israel’s domestic requirements. Adjacent to this field is the largest natural gas discovery of the past decade, the giant 19 trillion cubic feet (tcf) leviathan field which has been earmarked for exports. In recent months, Israel has signed export agreements with her regional Arab neighbors, the Palestinians and Jordanians, to supply natural gas which will transform Israel into a net exporter of energy for the first time in its history.

The founding fathers of Israel are surely pleased with how events have unfolded for the young Jewish State. As Israel fought numerous wars against energy rich Arab neighbors, the “oil weapon” was systematically used against it and the U.S. on countless occasions especially after the Yom Kippur War. Ironically, it was during peace times that Israel’s treaty partner, Egypt, decided to cut all gas flows to Israel. By fate’s caprice and what is now acknowledged were Moses’ excellent navigational skills, Israel will not only be a larger natural gas producer than her Arab neighbors in the eastern Mediterranean for the foreseeable future, but also a net exporter to them. While these developments are an unprecedented political and commercial success for Israel and the operators developing the offshore gas fields, the Palestinian and Jordanian markets are small, and pipeline exports to both do not constitute the same political risk as Israel’s far larger and more dangerous neighbor to the north, Turkey.

The decisions Israel makes along with the operators developing the Leviathan field on how to export energy to Europe will have a profound and positive geopolitical impact on Israel if conducted in a prudent manner that takes into account the complex geopolitics of the region.

Recently, there have been commercially driven proposals to construct a pipeline from Israel’s giant leviathan field to Turkey as the cheapest and fastest way to export Leviathan’s energy to both Turkey and Europe. While this may be true from a pipeline cost standpoint, the question that Israel and Europe should be asking is, is this route in both Israel’s and Europe’s interest? The answer is no. The idea is bereft of the political realities in the region and does not take into account the potentially devastating impact this option can have on Israel’s strategic relations with EU member Cyprus, and by extension, all of Europe.

In a speech to the British Parliament on the importance of assuring dependable supplies of energy at reasonable prices for the British Admiralty, in 1913 Winston Churchill famously said: “On no one quality, on no one process, on no one country, on no one route and on no one field must we be dependent. Safety and certainty in oil lie in variety and variety alone”. In response to the third potential gas crisis between Ukraine and Russia since 2006, and by extension, Europe, Israeli and European statesmen should take heed of Churchill’s words and look towards Israel and Cyprus’ energy to diversify both supplies and routes from Russian state owned monopoly, Gazprom, and Turkey as a transit country for Europe’s market.

Historically, Europe imports approximately two-thirds of its natural gas demand from three sources: Russia, North Africa/Qatar, and the North Sea. In 2013, as a result of political instability in North Africa, Qatari preference to ship LNG to the premium Asian markets where prices fetch double what they do in Europe, and depleting indigenous production in the North Sea, this permitted Russia to obtain an unprecedented 30% of the 538bcm European market share, and an increase of 16% year-over-year when including Turkey. Imports to Germany and Italy spiked 20% and 60% respectively. Declining Norwegian production and exports to Europe via the North Sea, which had achieved a larger percentage of the European market than Gazprom in 2012, fell 5% in 2013. Consequently, this permitted Russia to supply approximately 30% more gas than Norway did in 2013 to Europe. Perhaps more worrisome is that declining European production is a long-term phenomenon. Declining indigenous European gas production can be most identified with the depleting reserves in the North Sea. Currently, the largest gas field in Europe, the giant Groningen natural gas field, was initially drilled in 1952. In February 2014, the Dutch government noted that it will cut production from this field by 25% in 2014.

Brussels has expedited plans to create additional energy corridors to Europe. In the summer of 2013, the “Southern Energy Corridor” was decided upon which will channel energy from the Caspian Sea to Europe through Turkey and Greece. Europe’s predominant dependence on supply and route from Russia and Turkey is a harbinger of instability and increases energy risk for the European market. If history is a guide to understanding the present and charting the future, both Israel and Europe should be weary of depending on Turkey to be the primary transit state of Leviathan’s riches to Europe.

The recent crisis between Ukraine and Russia belies the notion that “peace pipelines” can be constructed to improve relations between neighbors. At a time of heightened energy vulnerability in Europe, is it wise for both Europe and Israel to depend on Turkey to channel the only autonomous western energy reserves in the entire region to energy hungry Europe while relations between Turkey and Europe and Israel are at an all-time low? If Turkey’s secular minority and western-oriented opposition were able to retake the country from the iron grip of the Islamists the answer may be yes. However, as Turkey continues to abandon the kemalist enterprise, and eviscerates the remnants of the secular republic modern day Turkey was founded on, Turkey will become as unpredictable a transit route as Russia has been as a supplier to Europe. This is a risk that neither Europe nor Israel can afford. Turkey’s ability to cut Israeli gas to Europe can become a calculated provocation that stokes unrest for Israel and particularly susceptible European countries which are already vulnerable to politically-driven natural gas blackmail by Russia.

Fortunately for Israel, and Europe, there are more politically suitable export options to Europe from Leviathan than the pipeline route to Turkey. Israel and Europe have an opportunity to mitigate the risks listed above by supporting and promoting further energy cooperation between Cyprus and Israel for the construction of the proposed LNG facility at Vassilikos that will have the capacity to accommodate Leviathan’s gas. The construction of this facility can also leverage Cyprus’ strong ties with Lebanon to help facilitate a binding resolution to the long lasting maritime dispute between Israel and Lebanon by also inviting Lebanon to export its gas to this facility. This will virtually transform the eastern Mediterranean into an integrated energy zone.

Gas can then be exported from this facility to Turkey’s regassification terminals as an incentive to promote the reunification of Cyprus and repair relations with Israel. A pipeline to Turkey can then be constructed when political circumstances permit, not before. This would include full normalization of relations with both Israel and Cyprus. This option would in effect export Israeli, Cypriot, and potentially Lebanese gas to the Turkish and European market without the risk premium involved that the pipeline option would currently have. Under present circumstances, for the pipeline to be constructed from Leviathan to Turkey, it would have to cross Cyprus’ exclusive economic zone. This is political infeasible for the medium , and potentially long-term. Cyprus has stated that it will not permit a pipeline to Turkey through its exclusive economic zone without a political settlement to the Cyprus problem.

Israel’s strategic relations with Cyprus, and by extension Europe, are rapidly improving while relations with Turkey are at an all-time nadir. Israel is geographically part of the predominantly Muslim Middle East, but this does not mean it has to be vulnerable to extremism and isolation forever. By exporting to Turkey, Israel will be forever connected with the Middle East’s problems. Even as Israel addresses the political and security challenges it faces, Israel has to work on economic interconnectivity in parallel. Regional economic cooperation between Israel and Cyprus should be the guiding principle that anchors Israel economically to Europe.

The physical connectivity—transport, communications, and energy infrastructure—by exporting leviathan’s gas to Vassilikos will link Cyprus and Israel and Europe. Utilized wisely the abundant gas from leviathan can drive employment and investment, while generating billions in public revenue. Israel can shape its own destiny firmly a part of the West by deciding to export to Europe through its European allies, or endure its destiny to be chosen for it, by opting to subject its national treasure to what has now become a regional menace.